Meeting SummaryThe Auditor General South Africa (AGSA), with some input also from Department of Basic Education (DBE), gave a presentation on the education sector audit outcomes, comparing the performance in the 2010/11 and 2011/12 financial years. The reason for drawing sector outcomes was that in trying to achieve clean audits by 2014, it was vital to identify the areas in which substantial and consistent improvements were required, in order to make a substantial effect on delivery of the aims of the sector. The AGSA briefly outlined the different audit results that could be achieved. A distinction was drawn between private sector audits, that focused only on financial information, and those in the public sector, that also looked at achievements against predetermined objectives (PDO) and compliance with laws and regulations. She explained, with particular reference to Umalusi, where the audit report was questioned, that it was therefore possible for an institution to get an audit report that, although financially unqualified, nonetheless had findings in the other areas. This would also help to explain the audit outcomes in the provinces.
The education sector received 19.4% of the total budget allocation, and this amounted to R170 billion in 2012. Audits were done for ten entities, or nine provincial and one national department. There had been some regression from the previous year, and 20% of the entities had disclaimer or adverse reports, 40% had qualified reports, and 40% were financially unqualified but with findings. There were no clean reports. A major concern was that corrections of R27 billion of misstatements on the financial statements were required. There were several instances of irregular, unauthorised expenditure, and fruitless and wasteful expenditure, many of which were only picked up on audit. Most entities had findings in one or more of the areas of PDOs, compliance, supply chain management and human resources management. These were transversal issues that were focused upon across all of the government. In addition, there were areas that were specifically identified as important to the education sector. 70% of entities achieved below 80% of planned targets. Overspending was apparent in Eastern Cape, KwaZulu-Natal, Limpopo, and the North West. AGSA stressed that many of the irregularities identified were the result of simple lack of discipline, and failure to draw up monthly financial accounts, which would have identified the errors and enabled them to be addressed much earlier. Instances of irregular, wasteful and fruitless, expenditure and unauthorised expenditure were given, and the difference between savings and under-expenditure was set out. Two serious concerns that would have to be addressed were awards to employees, and control deficiencies, both of which showed an 80% increase in this year. There were also concerns around HR management, particularly leave and sick leave where supporting document could not always be produced.
AGSA explained that after doing the audit, it would indicate the deficiencies and call for comment from management, and then seek commitment, by way of an audit action plan, to address the matters. 54 commitments were still in progress at the end of this financial year, but eight still required intervention. The situation in Limpopo was listed as zero, because this provincial department was under administration. The executive was also required to commit to assisting management to secure improvements. Seven focus areas were identified. The AGSA touched briefly on the need to audit the National Schools Nutrition Programme, and said that there was not compliance with requirements around mealtimes. Learner Teacher Support Material also required attention. The Learner Transport Scheme was operated in some provinces by the provincial department of Education, but in others by Transport, but AGSA wanted there to be collaboration towards the common goal of ensuring safe transport for learners. The Education Infrastructure Grant had improved.
Members were generally appreciative of the report, but commented that they would like a workshop on the issues, and would be hearing again from provincial departments and AGSA in January. They asked how clean audits could be achieved, asked for more clarity on the pyramid of accountability, raised questions around interpretation of some figures. They questioned why sector areas did not focus on learner outcomes, which were not always measured by financial indicators, but by proper budgeting. They were concerned that compensation of employees and textbook expenditure were not, for instance, mentioned. Members asked if corruption was increasing, if awards to state officials had increased so much, but AGSA responded that it was difficult to pinpoint this exactly, as many of the matters were linked to control deficiencies. The Department attempted to explain whether value for money was achieved from the spending. Members noted that the Committee would have to hold the DBE accountable to ensure improvements, questioned why targets in the Free State were not quantifiable, and wondered if management was making conscious decisions not to disclose, hoping that matters would not be picked up. They were concerned that duly appointed contractors must run the Nutrition Programme. DBE explained what was being done about non-compliance and conditional grant monitoring.
Education Sector Audit Outcomes 2012 in provincial entities: Auditor-General’s briefing
The Chairperson noted that the report of the Auditor General South Africa (AGSA) related to the education sector audit outcomes in the provinces, as the report for the national departments and entities had already been received.
She also noted that the Committee had received a letter from Umalusi, and the Committee had discussed the matter with AGSA.
Ms Meisie Nkau, Business Executive, AGSA, reminded Members that AGSA had already presented upon the Basic Education portfolio audit outcomes at national level. She explained that AGSA would audit specific focus areas of the relevant department. Education was particularly significant in South Africa. The focus areas for this year were those that would contribute to quality education, and if those areas did not function as they should, and were not sufficiently effective, then the desired quality of basic education would not be achieved.
When the sector report for 2011 was presented, the Members requested that AGSA look also at other areas that they believed would impact on the quality of education. Some were not yet capable of being audited, but AGSA was working with the Department of Basic Education (DBE or the Department) and asking it to monitor.
The sector focus areas were audited for the provinces, because that was where service delivery happened. Reports were received from the provinces and AGSA consolidated them and presented them to the particular portfolio committees in a Sector Report. One of the areas isolated for 2012/13 was teacher attendance in the classroom. That was difficult for AGSA to monitor, but it would find ways, over the years, to get a better picture of this, and it was intending to run pilots in the current year.
Ms Nkau reminded Members that government was trying to achieve Clean Audits by 2014. She wanted to reiterate what this would mean, for AGSA and stakeholders. This might also clarify the areas of difficulty in the interpretation of the Umalusi report.
She outlined that when AGSA had performed an audit, it drew up a management report, which was discussed with the entities. The entities’ management would comment on the findings, and the auditors would then evaluate those comments, along with any additional audit evidence, and consider the impact on the audit outcome. AGSA then drew up the final audit report, which it presented to management, the Audit Committee, the Minister and the relevant Portfolio Committee.
She then discussed what “clean audit outcomes” meant. Historically, in the private sector environment, an opinion would be expressed by the auditors on the financial statements. A private entity would be regarded as achieving a “clean” or unqualified audit if its financial statements were correct. However, in the public sector the focus was not limited to the financial statements. Instead, AGSA looked at the financial statements, the predetermined objectives (PDO) and the entities’ compliance to laws and regulations. In those three areas AGSA expressed an opinion.
In respect of the financial statements, AGSA’s opinion could be clean, which meant that there were no discrepancies, or unqualified. A qualified audit would be given if there were findings on certain areas of the financial statements. An adverse opinion meant that there had been disagreement in terms of the accounting treatment. A disclaimer meant that AGSA did not obtain sufficient supporting evidence to enable it to express an opinion on the financial statements.
In terms of performance information, AGSA expressed an opinion in the Management Report, and not in the Audit Report. However, if the opinion was qualified, adverse or a disclaimer, those findings would also be reflected in the Audit Report. If the financial statements were unqualified and there were no findings on performance information, then the audit report of the entity was clean. However, if the financial statements were clean, but there were some adverse comments about performance information, AGSA would note that the audit report of the entity or department was unqualified, but with findings on performance information. Similarly if the financial statement was clean, but there were findings on predetermined objectives, or on compliance with laws and regulations, that would be specified.
She noted that performance information findings could also be expressed as qualified, adverse or disclaimer.
If non-compliance with laws and regulations were material AGSA would report the findings in the Audit Report.
Ms Nkau summarised the classification of the audit outcomes as follows:
- Financially unqualified with no findings on predetermined objectives and compliance with laws and regulations would be referred to as “unqualified with no findings”.
- Financially unqualified, but with findings on predetermined objectives and/or compliance with laws and regulations, would be referred to as “clean or unqualified, but with findings” The areas where the findings were made would be specified and they would need attention.
Ms Nkau noted that if the report was qualified, there would almost always also be findings about predetermined objectives or compliance, and the same applied to adverse and disclaimer reports.
Ms Nkau stressed that Umalusi fell into the category of “financially unqualified, but with findings”. The financial statements were correct. However, in respect of the PDO, AGSA had noted that the SMART principles (that outcomes should be specific, measurable, achievable, realistic and timeous) were not adhered to. It had also questioned the reliability of the information provided for audit purposes. It had expressed an opinion whether the indicators used for the objectives complied with the SMART principles. Because AGSA found that the indicators were not useful, it had expressed an opinion that the PDOs were not acceptable. However, there were no findings made on its compliance with laws and regulations.
The Chairperson thanked Ms Nkau for that information and for clarifying the outcomes for Umalusi. It was important that each Member of the Committee fully understood the issue of audit outcomes.
Education Sector Outcomes and allocations: Mr Diale briefing
Mr Godfrey Diale, Senior Manager, AGSA, said, by way of introduction, that education allocations comprised 19.4% of the total budget, which was an indication of how seriously education was taken by the administration. Most was spent in KwaZulu-Natal (KZN), Gauteng, the Eastern Cape and Limpopo. The budget had been R170 billion in 2012, compared to R144 billion in 2011.
He noted that the audits were done for ten entities, being nine provincial and one national department. In 2011, 50% of the entities within the sector had qualified reports, whilst 40% were financially unqualified with findings, and one entity had a disclaimer. For 2012 that position had regressed, since 20% of the entities had disclaimer or adverse reports, 40% had qualified reports, and 40% were financially unqualified but with findings. There were no clean reports. He summarised that in this year, Limpopo and Eastern Cape had disclaimers, that Western Cape moved from financially unqualified with findings to a qualification. However, Free State had improved from qualified with findings, to financially unqualified with findings on predetermined objectives and compliance with laws and regulations.
He touched upon financial misstatements identified and subsequently corrected by management. The biggest area of concern was expenditure of R27 billion that had to be corrected on the financial statements, along with other disclosure notes of R12 billion, and capital assets of R6 billion. Other instances of irregular expenditure, unauthorised expenditure, and fruitless and wasteful expenditure were noted.
Mr Diale turned to transversal focus areas in terms of predetermined objectives, compliance with laws and regulations, supply chain management and HR management. Most of the entities had findings in more than one of those areas. Gauteng did well, with findings only on compliance with laws and regulations; and the Western Cape had findings on compliance with laws and regulations and on supply chain management.
Mr A Mpontshane (IFP) interjected, asking for an explanation of the word “transversal”.
Mr Diale clarified that transversal focus areas were areas that the auditors looked at during the audit process across all spheres of government.
Ms Nkau added that, for a few years, the Auditor General had identified areas that needed improvement if clean audit outcomes were to be achieved. For instance, issues that were continuously being raised, and that would hinder progress if not corrected across the whole of the public sector, were PDO compliance, compliance with laws, supply chain management that gave rise to irregular expenditure, HR management, and material adjustments to the financial statements.
Mr Diale continued to set out the achievement of planned targets on the strategic plans of the entities. 70% of the entities achieved below 80% of planned targets, and only two of the entities in the sector achieved above 80% of planned target. One entity could not quantify the extent of the level of achievement. The highest level of non-achievement was Limpopo province.
With regard to compliance with laws and regulations, the greatest concern was in the area of expenditure management, where there were material misstatements, followed by procurement and contract management.
No unauthorised spending was identified. However, overspending on the main divisions of the vote were identified in the Eastern Cape, KwaZulu-Natal, Limpopo, and the North West.
Unauthorised expenditure identified by management was identified as R1.158 billion, and R267 million was identified through the audit, so the total of unauthorised expenditure was R1.426 billion.
Ms Nkau clarified that when financial statements were submitted on 31 May, they had to be adjusted. The main reason was the lack of discipline in the public sector in drawing up monthly financial accounts. Quarterly reports were sent to National Treasury, but these focused in income. Disclosure notes relating to unauthorised expenditure and irregular expenditure were not normally included. They were seen, for the first time, at end May, and required adjustment because they had not been attended to earlier. She stressed that in most cases where departments or entities received disclaimers of opinion, it was because there had been no financial discipline.
Mr Diale continued to analyse irregular expenditure. Last year, irregular expenditure of about R3.5 billion was reported, but it was linked to population numbers. In this year, reporting was done on actual irregular expenditure identified and extrapolated. There was a slight increase in irregular expenditure, split into the three categories of supply chain management, compensation of employees, and “other”, respectively of R1.7 billion, R87 million and R338.9 million (see attached presentation for full details).
Ms N Gina (ANC) asked for examples of irregular expenditure, wasteful expenditure and unauthorised expenditure.
Mr Diale clarified what was meant by unauthorised expenditure. He noted that regulations governed expenditure in the public sector, with a budget, linked to a programme of the Vote. Funds budgeted could be moved within a programme, or from one programme to another, but there was a limit of 8% on the amounts moved, and this was referred to as “virements” or “shifting”. However, if there had been over-spending in one programme, and a department simply tried to “borrow” money from another programme to move it across, outside of the virements allowance, this would be regarded as unauthorised expenditure. It may not affect the final expenditure, as there could be a surplus in one programme and a deficit in another.
The Chairperson asked Mr Diale to explain the difference between savings and under expenditure.
Mr Diale responded that an example of a saving would be where a budget was set in anticipation of spending R1 million. However, when the invoice was received, it was less than this amount, or a discount was offered. This would be a saving. An under-spending, however, would be where the budget for the planned activities was R1 million, but the activities never took place, meaning that the money was not spent. There must be explanations given for both.
Mr Diale said that there was an increase in irregular expenditure, which was spending not in accordance with the correct rules. Management reported very little irregular expenditure but more was identified through the audit process.
Dr A Lovemore (DA) asked for clarity on whether misstatements were false statements.
Mr Diale clarified that they could also be an omission, or a combination. If the internal audit was functioning, but when management reviewed the financial statements, it might say that the statements were completed correctly. However, the audit process would identify errors. It was difficult to say whether this was intentional. Misstatements could be corrected by management.
Mr Diale then outlined that fruitless and wasteful expenditure for the sector was R166 million, which was a slight improvement from the previous year’s R172 million. Management had reported R37 million, mainly in the provinces, but a further R130 million was identified during the audits.
The summary of audit findings from supply chain management showed that awards to employees and other state officials increased by 80%, and internal control deficiencies also increased by 80%.
Mr Z Makhubele (ANC) questioned whether management was not willing to disclose fruitless and wasteful expenditure, and asked whether this was generally something not initially planned.
Mr Diale clarified that fruitless and wasteful expenditure was expenditure that could have been avoided if management had taken more care. For instance, if an official was booked to fly to Cape Town, but did not, then the expenditure on the ticket was fruitless and wasteful expenditure. However, if officials incurred expenditure in flying to Cape Town for a meeting, actually did fly there, and the meeting was cancelled, that was not fruitless and wasteful expenditure, because it was outside their control. Whether or not expenditure was classified as fruitless and wasteful depended on what reasons were provided.
Mr Dikobo summarised that essentially fruitless and wasteful expenditure meant there was no benefit from the expenditure.
Mr N Kganyago (UDM) asked for clarity on the difference between fruitless and wasteful expenditure, and asked if high expenditure on goods or services, when they could have been sourced cheaper elsewhere, fell into this category.
Ms Gina asked whether it would be regarded as fruitless and wasteful if officials insisted on flying Business Class, when Economy Class was equally comfortable and convenient.
Ms Nkau responded that it would be difficult for an auditor to decide this in isolation. The question of the travel would be guided by the departmental policy, and what the accounting officer approved. The AGSA was not required to evaluate the cost. Perhaps this was something that portfolio committees should do, and report back to departments that it was aware of certain issues. She added that if expenditure brought no benefit to an entity, it was fruitless, and this meant that it was also wasteful. The two went hand in hand. It must always be remembered that this was taxpayers’ money. In answer to Mr Kganyago, Ms Nkau clarified that the Department and entities had bid adjudication committees to evaluate tenders. The AGSA did audit the tender process, and often irregular expenditure meant that the process had not run smoothly and the wrong quotation was accepted.
Mr Kganyago wondered why it was necessary to use two words of “fruitless and wasteful”. One would have sufficed.
Ms Nkau responded that this was the way it was legislated.
The Chairperson said the Committee’s main concern was what those amounts of R37 million and R130 million comprised, what the provinces said, and what the auditors found.
Mr Diale reiterated that the major area of concern with regard to supply chain management was in the area of awards made to employees or other state officials, and uncompetitive or unfair procurement processes. That area really needed attention. Improvement was needed on internal control deficiencies. Awards made to employees or other state officials were of serious concern.
Dr Lovemore asked for clarification of the limitation on the planned scope of audit of awards. She also did not understand the reduction in uncompetitive or unfair procurement processes that appeared clear until going to irregular expenditure supply chain management related, which was R1.8 billion. That seemed to be a contradiction.
The Chairperson asked what awards were made to employees or other state officials.
Mr Diale clarified that limitation on the planned scope of audit of awards would be cases where insufficient documentation or appropriate audit evidence could not be presented to justify the awards made by the entities. The 40% reduction meant that four provinces could not produce sufficient evidence to justify awards.
Looking at unfair procurement processes and uncompetitive bidding that indicated a reduction, he noted that high expenditure in this area was shown on another slide, as well as a reduction in the number of entities.
Mr Diale said one of the transversal focus areas was the area of HR management. The AGSA found that the biggest area of deficiency lay with administration of leave, where significant control deficiencies were identified at seven of the entities in the education sector, increasing from 30% in 2011 to 70% in 2012. The other area of concern was payroll certification, as payments were supposed to be certified as being paid to proper employees, before being made. The rate of sick leave was of concern, as well as management of overtime, and both had to be addressed by the Department.
AGSA also looked at commitments made by the leadership of the Department, executive authorities, director generals and CFOS. During the audit process, the auditors would go to the executive authorities indicating the deficiencies that resulted in the audit outcomes, and ask what the leadership of the department was doing to address them. Management would commit to making improvements by way of an audit action plan, and this would have to be implemented efficiently to ensure that the deficiencies reported did not recur. That would drive the process and agenda on clean administration. At the end of the financial year, 54 of these commitments made were still in progress, and intervention was still required on eight.
Mr Makhubele asked what was the situation with Limpopo, which noted zero commitments, zero achieved, and zero interventions.
Mr Diale responded that the reason was that the Department of Education in Limpopo was under administration, and received a disclaimer audit opinion. Documentation could not be provided to draw reasonable audit conclusions, and the leadership could not commit to any commitment.
Dr Lovemore was concerned that the commitments were made after 2010/11, which was prior to the Administration, and therefore there should have been commitments made and reflected there.
Ms Nkau said AGSA would have to come back to the Portfolio Committee on that, as she was not sure of the reasons.
Mr Makhubele questioned whether it was the province or national team who would have to make a commitment if the department was under administration.
The Chairperson said what was reported was a clear example of the accrual system. When it came to the end of the financial year, commitments made would continue despite the end of the year. She asked for an example of a commitment.
Ms Nkau clarified that at the end of the audit AGSA would discuss the findings with management. Management would then draw up an action plan to correct the findings. AGSA obtained commitments from the executive, on how the executive would then hold management accountable, and assist management to clean outcomes. The commitments related to what the executive would be doing.
She said that one example might be misstatements, which were caused by lack of discipline in producing credible and accurate monthly accounts. The executive would commit to holding the accounting officer or head of department responsible for producing complete, accurate and credible monthly accounts, to ensure that no material adjustments were needed at year end. There could also be commitments around predetermined objectives or around irregular expenditure, to look at the findings that were raised.
The commitments stated in this presentation emanated from the 2010/11 audit. Provinces were committed to doing certain things to ensure that the audit outcomes improved in 2011/12. The slide showed what the provinces achieved, and she gave some examples of how they might commit to improve. If intervention was again required, that meant that nothing had been done by the province or department in relation to the commitment that the executive made. Commitments on the audits of 2011/12 were still under way. The auditors were first discussing them with the executive, and getting them signed off, and they would then be monitored.
Ms Mushwana asked an inaudible question.
Ms Nkau clarified further that where a province or department had started doing something, the auditors recognised that there was effort and classified the matter as in progress. Where it said intervention was required the department had not even started working on the issues. AGSA had started, now, to break down “in progress” and was colour-coding the matters: yellow meant that the same findings occurred for two years and there was a risk.
Mr Kganyago suggested that it would be useful to hold a workshop on this.
Mr Diale turned to the summary of outcomes in the sector focus areas. Seven focus areas were identified, not because they were more important than others, but because they were informed by the risks identified in the areas, the money budgeted for the areas, and through discussions with stakeholders such as National Treasury and provincial departments themselves. On HIV/AIDS life skills education, it was noted that Limpopo had one finding that was not identified in other provinces. Not all educators received all planned training on HIV/AIDS life skills education. An analysis from 2010 showed that the number of findings had gone down, but there was a need to move to not having findings in service delivery areas.
The audit on the National School Nutrition Programme was based on compliance with available legislation or frameworks. AGSA would, for grants, look at whether these funds were spent in terms of the requirements of the framework or any policy to guide the process. An area of concern identified in seven departments were instances where meals were not served at the required time.
Learner Teacher Support Material (LTSM) was also identified as a focus area for 2011. This was an area that also needed attention. Only one province had findings.
The Learner Transport Scheme was run, in some provinces, by the Department of Transport and not necessarily the DBE, but the auditors encouraged the provincial departments to work together to ensure that learners were safely transported. In cases where the Department of Transport was responsible, the budget would be with the DoT, but any shortcomings impacted negatively on education.
Very limited findings were raised in respect of the allocation of funds to schools.
In terms of Technical Secondary School Recapitalisation, management put in considerable effort in order to address the findings of 2011.
The reduced number of findings reported on the Education Infrastructure Grant was an indication that the recommendations issued in the Education and Health Infrastructure Report were attended to by management. The findings were expected to drop further.
Ms Gina said the summary of status on transversal focus areas covered much of the report but showed that much still had to be done in the sector as a whole. Looking at that picture, she asked if it could still be said that clean audits might be closer in view by 2014. She asked what could change that picture.
Mr Diale responded that the pyramid of responsibility had adequately addressed what interventions were required, and also the levels of accountability, that needed to be in place to assist the initiative of achieving clean audit outcomes by 2014. It was still possible to achieve clean audits by 2014 if the right resources were in the right place and action was taken for non-performance. Non compliance needed to be addressed, and processes were needed to ensure that not only the symptoms were addressed, but also the causes.
Mr Dikobo referred to the pie chart on financial misstatements corrected, and did not understand the area of current assets 402.
Mr Diale said the light blue showed current assets of R402 million.
Mr Dikobo did not understand why there was different reporting on the slide for achievement of planned targets, as the percentages should refer to the same matters.
Mr Diale explained that AGSA decided to tolerate an error of up to 20. Provinces that achieved more than 0% were moving in the right direction, but all others reflected a negative report.
Mr Dikobo referred to the possible abuses on sick leave, but also commented that perhaps the employees were not healthy.
Mr Diale responded that of AGSA was worried that the necessary documentation for sick leave was not presented. There were policies that governed sick leave in the public sector, requiring medical certificates for absences of a certain number of days. Where evidence was not submitted it was difficult to say what exactly occurred, but there was the possibility of abuse.
Ms A Mashishi (ANC) asked where municipalities fitted in the summary of transversal focus areas.
Mr Diale said he was just using an example, that the AGSA looked at the transversal focus areas in all spheres of government.
Ms Mashishi referred to the audit of predetermined objectives and noted that provinces achieved more than 80%. She asked in what specific areas the targets were not achieved.
Mr Diale responded that the pyramid of accountability was very specific, and if business was conducted strictly in line with requirements, then 100% would be achieved. Perhaps the entities needed to see whether targets were realistic, and if budget was not sufficient and plans were achievable.
Dr Lovemore appreciated the very comprehensive presentation and patient explanations. However, the sector focus areas did not focus on learner outcomes. She understood that the issues mentioned contributed to overall improvements, but learner outcomes were not measured by financial indicators. There was no focus on budget set aside for teacher professional development or registration of teachers. She asked where the information presented was sourced.
Mr Diale explained that AGSA looked at funds for specific items, within the overall allocation of funds to school. The audits . He agreed that was a need to look at funds not being used for the intended purposes.
Dr Lovemore asked why the auditors were not looking at compensation of employees as a percentage of the budget.? It was a massive indicator of possible under expenditure. The operational budget for the Eastern Cape’s reflected this, and this budget also reflected a lack of expenditure on other vital aspects such as textbooks.
Ms Nkau responded that a section on compensation of employees would be included in the next report.
Dr Lovemore referred to the allocated school funds not being fully utilised, resulting in poor pass rates for the year under review in the Eastern Cape. A lot of things could have contributed to poor pass rates, so she wondered how AGSA made the link between pass rates and funding.
Mr D Smiles (DA) concurred with Dr Lovemore, but asked whether the presenters could direct him to a concluding page to give a summary overall.
Mr Smiles asked whether the figures referred to the number of financial misstatements or referred to rand figures. He also asked who should be held accountable for those financial misstatements.
Mr Diale responded that the figures were in rands, and did not show numbers of instances. The pyramid of accountability was very specific, and everyone in the chain of production should be held accountable, including accounting officers, employees doing the physical work at ground level, and those operating systems and processes.
Mr Smiles referred to the increase of awards to employees and state officials and internal control deficiencies, all showing increase of 80%. If internal controls were lacking and there was an increase in awards to employees and state officials, he asked if that was an indicator that corruption was increasing.
Mr Diale responded that this could relate to the findings reported in the Management Report, as they were largely due to weaknesses in the control environment, allowing awards to employees of the state.
Mr Smiles asked whether the R170 billion spent for the sector bought quality education and improved learner outcomes.
Mr Gerrit Coetzee, Director: Strategy Planning, Department of Basic Education, responded that that was a very difficult question. Various factors contributed to whether value for money was achieved. In the context of the presentation received today from the Auditor General it was possible to ask many questions. The presentation highlighted the amount of work that the DBE had to do to ensure that the people of South Africa received value for money invested in the sector. The DBE would have to work closely with the Auditor General, as well as with National Treasury and the Department of Performance Monitoring and Evaluation, to ensure it arrived at the detailed interventions that were required, not just in the national, but also the provincial offices. DBE was encouraged by the four provinces that acquired a green status in terms of their performance information, and would see how their good practices could be implemented in the other provinces. The DBE would continue to work with the provinces through the various Heads of Education Departments committees (HEDCOM) and the subcommittees that dealt with issues of planning, target setting, indicative formulation, research, monitoring and evaluation, to ensure improvement in performance information reporting.
Mr Mpontshane appreciated this report, which would help the Committee hold the DBE accountable. He fully understood that the AGSA would not apply sanctions to delinquent provinces and said the Committee would address over expenditure, fruitless and wasteful expenditure. He asked if third parties contributed to the findings.
Mr Makhubele also said that the report would be useful. He noted that there were three findings in transversal areas where improvement was needed, there were seven where no matters were reported, and about 25 where intervention was required. Mr Makhubele was concerned with the Free State, that had findings on predetermined objectives, compliance with laws and regulations, and supply chain management. It had been said it was difficult to quantify the achievement levels of the Free State, but he asked if this was now under control.
Mr Diale agreed that the red highlights indicated that serious intervention was required, which did not look good for the sector. There should be a move to everything highlighted in was yellow (where no matters were reported). Everyone must understand that clean audit outcomes were achievable.
Mr Makhubele asked why AGSA was not able to quantify achievement in the Free State, for predetermined objectives and achievement of planned targets.
Mr Diale explained that in the case of the Free State, supporting documentation could not be provided for more than 30% of the targets reported on the strategic plan, which was a limitation of scope. If documentation could not be provided, the information could not be justified, so the AGSA was unable to quantify it.
Mr Makhubele noted that it seemed that only Free State handled the problem of fruitless and wasteful expenditure for 2011/12. Only in the national and Western Cape departments were “no findings” found. However, he would have thought that Free State fell into this category for 2011/12.
Mr Diale explained that it was easy to pick up unauthorised expenditure from the appropriation statements and supporting documentation. Fruitless and wasteful expenditure could go undetected and unrecorded even on the audit process if the reasons for the transactions were not disclosed.
Mr Makhubele referred to the analysis of financial misstatements, the amounts identified by management and those identified by the audit effort. On irregular expenditure, management made considerable improvement, but for 2011/12 there was less disclosure. He wondered if there were conscious attempts not to disclose and wondered if this had anything to do with the internal audit unit.
Mr Diale responded that the pyramid of accountability spoke to the importance of oversight structures such as the Audit Committee, and also to the importance of the internal audit. If the internal audit was capacitated to ensure that performance information and monthly and quarterly reports were verified, and all the checks and balances were properly done, there should not be a need for material adjustments to financial statements and annual performance reports.
Mr Makhubele raised concerns around the National School Nutrition Programme, where food handlers did not have a valid contract, which was of grave concern as they could disappear. The DBE should ensure consistency and correct contracts.
Mr Diale explained that when the AGSA looked at the area of school nutrition, it examined all policies and guidance around spending. There were concerns when service providers were appointed without valid contracts, but this was an area of non-compliance, and one where controls around procurement were lacking.
Ms Nkau said that AGSA believed that all education, from basic to tertiary, and development of skills, were vital for the country. The final AGSA report would incorporate all aspects. However, the information had to be verified from the provincial auditors. AGSA had examined the number of matriculates entering higher education, many of whom were entering universities and colleges now. AGSA would have to sift through various information, and audit it at different levels, to establish patterns for matriculants entering tertiary education in 2012. This was currently being done.
Ms Nkau commented on questions around the quality of learner outcomes, and compensation of employees. A number of new dimensions were added to the Sector Report this year, such as the PDOs by province, to link this to budget utilisation. Spending varied between 90% and 99% per province, but on average less than 50% of predetermined objectives were achieved.
She undertook to send to the Committee a list of all the focus areas, to identify what contributed to quality education, and then analyse each of those areas to indicate, in terms of the audit findings and the skills audit, what AGSA could do, and what the DBE should be doing. That would also be reported back.
Ms Nkau explained the pyramid of accountability, noting that the bottom level supported the others. Firstly, skilled, competent and ethical employees were needed. Secondly, there must be systems of internal controls that underpinned the policies and procedures within a department, supported by effective policies and procedures. People who understood the requirements must exercise those controls. The department or entity must have a strategic plan and people to execute it, who should also be skilled, be properly managed, and the policies properly communicated. For all of this, solid leadership was needed. Daily, weekly and monthly financial and performance disciplines must be in place, with monthly reporting that was credible, reliable and complete.
Accountability would be communicated in the roles and responsibilities as set out in individual performance agreements. Everyone must know what his or her contribution should be. Internal auditors would manage all the processes put in place, because the role of the internal audit was to ensure that the systems and controls were working as they should. The internal auditors would communicate to management and Audit Committees what was lacking and where improvements were needed. If each of the levels was functioning properly, and management responded to findings and put in place corrective action, then reports to the audit committee should be reliable. This whole process should identify any irregular expenditure, which was largely related to non-compliance with the legislative or policy requirements. If that was done monthly, then the auditors should not, at the end of the year, have to identify material misstatements made, or pick up extra irregular fruitless and wasteful expenditure, or unauthorised expenditure, because it would already have been identified.
Ms Nkau emphasised the responsibility of management to ensure that interventions were put in place to address the findings raised. The executive should support management in putting those interventions in place. Some departments claimed that the unfunded posts meant they had no capacity to carry out responsibilities. The auditors believed that the executive should assist the department in getting funding to fill the positions.
Another point was that many departments and entities said they were not able to achieve their targets because they did not have sufficient budget. Departments set their own budgets. When budgets were cut, those departments therefore had to go back and revise their targets, and ensure that they were aligned to the budget.
Ms Ntsetsa Molalekoa, Chief Financial Officer, Department of Basic Education, responded to the issue of non-compliance. A team from the national DBE, together with National Treasury (NT) representatives, was in the provinces to deal with issues raised in the audit outcomes report. DBE’s subcommittee on finance discussed serious issues, including audit outcomes. DBE and NT had asked the provinces to indicate areas in which they may need assistance. She pointed out that the audit was usually concluded in July, so issues of compliance would be sorted out only after then. This meant that the audit report for the following year may carry over some issues from previous years, which was why they showed as red on the graphs. By now, many of the issues had been corrected. In addition, the DBE was contesting findings in some areas. She indicated that in respect of non-compliance, the Division of Revenue Act may require that school food be delivered at 10:00 and if it was delivered at 10:15 this was strictly speaking regarded as non-compliance, although it did not have a substantial effect. She reiterated that the national DBE had done a great deal, but the timing lags meant it was not always reflected.
Mr Vernon Jacobs, Director: Grants, DBE, responded to the questions on conditional grants and acknowledged that the DBE had some challenges with these, particularly around monitoring the expenditure. That was why the dedicated Grant Implementation Monitoring Unit was established, and the DBE had also started developing a process and system for analysing reports. DBE was meeting deadlines and submitting reports timeously, but had not, in the past, been analysing them enough to be able to pick up on the issues highlighted by the AGSA. The Chief Financial Officer had spoken of some interventions. DBE would be holding workshops with provinces on conditional grants, to ensure there was always compliance with what appeared in the grant framework. He would be joining the team visiting KwaZulu-Natal and would feed information from there into the process. The depth of the questions asked today added further value to the process. It had been clear that some provinces had not understood what was required in terms of compliance.
He added that DBE had previously noted that capacity was an issue, and sometimes in the provinces the official managing the conditional grants was doing this in addition to several other areas. National Treasury had been asked if the DBE could start top-slicing of funds to fund a dedicated post for work on conditional grants in provinces. The Minister was agreeable to that.
The Chairperson concluded that the Committee would be calling AGSA, Heads of Departments and the Superintendant General in January. An agenda would be set for the meeting, but basically the provinces would be asked to tell the Committee how they intended to address the issues raised. DBE would also have to report, and notify the Committee how it intended to monitor and evaluate the interventions. A whole day would be dedicated to the process.
Other Committee business
The Chairperson noted that the Umalusi Conference Report and the report on the Workshop at Monkey Valley and Kuruman were available. These would be passed at the next meeting.
A submission was to be made for a study visit to Botswana and Kenya to study their basic education systems from 2 to 14 December. The Committee would be visiting two provinces to look at matric exam marking centres.
The meeting was adjourned.
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